Financial vs Mathematical Inequality
Dan Ariely conducted John Rawls’ veil of ignorance study for wealth distribution and posted the results on his blog.
Unsurprisingly, Americans were wildly off the actual distribution and preferred a more equal distribution. If you read into the study it turns out most Americans favor the Swedish level of distribution.
This is all very fascinating and instructive, but I can’t help but worry that a study like this highlights another type of inequality… of math and logic skills. The respondents were asked to “indicate what percent of wealth they thought each of the quintiles ideally should hold, again starting with the top 20% and ending with the bottom 20%.” I seriously wonder if you explained that making the 2nd and 3rd quintile each hold 20% of the wealth meant that they would each be perfectly equal and have no disparity in wealth and making the top quintile hold only about 30% of the wealth meant that the “richest” wouldn’t be very rich in a relative sense. If you look at the graph that averages out everyone’s preference in the study it seems like Americans prefer that almost no differences in wealth exist at all. Do Americans understand that distributing wealth in the way they did doesn’t mean that wealth is progressively tiered down but means that everyone has almost the same wealth with the richest having slightly more and the poorest slightly less?
Unfortunately, I can’t find an actual poll asking specifically if rich people deserve their extra wealth, but I remember reading that many Americans feel that they do. [Source anyone?] Greg Mankiw’s latest paper certainly is representative of that view. Ariely is a great behavioral economist that regularly shows that people give answers by how the question is framed. There is no doubt that Americans would prefer less inequality – there is little doubt less inequality would be a good thing – but I’m left wondering more about the possible disparity in their understanding.